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Closing and Title Costs
It's the
big day.
The day you go to the title or escrow company, sign your name on the
dotted line, hand over a check and prepare to take ownership of your new
home.
It's also the day that you and the seller will pay "closing" or settlement
costs, an accumulation of separate charges paid to different entities for
the professional services associated with the buying and selling of real
property.
It's too often a day filled with uncertainty and stress.
To help you better understand this confusing subject, the Land Title
Association has answered some of the questions most commonly asked about
title, closing and closing costs.
What services will I be paying for when I pay closing costs?
You will usually be paying for such things as real estate commissions,
appraisal fees, loan fees, escrow charges, advance payments such as
property taxes and homeowner's insurance, title insurance premiums, pest
inspections and the like.
How much should I expect to pay in closing costs?
The amount you pay for closing costs will vary; however, when buying your
home and obtaining a new loan, an estimate of your closing costs will be
provided to you pursuant to the Real Estate Settlement Procedures Act
after you submit your loan application. This disclosure provides you with
a good faith estimate of what your closing costs will be in the real
estate process. An itemized list of charges will be prepared when you
close your transaction and take title to your new property.
Can I pay for my closing costs in installments?
No, and it is easy to understand why. Many different parties will have
fulfilled their responsibilities and be awaiting payment upon closing. The
title or escrow company will disburse money to those parties, pursuant to
the escrow instructions, when funds are available.
Will I be allowed to write a personal check to cover my closing cost?
Your closing funds should be in the form of a cashier's check, issued by
an institution from the state of your purchase, made payable to the title
company or escrow office in the amount requested. A personal check may
delay the closing or may be unacceptable to the title or escrow company.
An out-of-state check could also cause a delay in your closing due to
possible delays in clearing the check.
How much can I expect to pay for Title Insurance?
This point is often misunderstood. Although the title company or escrow
office usually serves as a meeting ground for closing the sale, only a
small percentage of total closing fees are actually for title insurance
protection.
Your title insurance premium may actually amount to less than one percent
of the purchase price of your home, and less than ten percent of your
total closing costs. The title policy is good for as long as you and your
heirs own the property with the payment of only one premium.
Why are separate owner's and lender's title insurance policies issued?
Both you and your lender will want the security offered by title
insurance.
Your home is an important purchase, and you will want to be certain your
home is yours, all yours. Title insurance companies insure your rights and
interests in order to protect you against claims.
Your lender is looking to insure the enforceability of their lien on your
property and marketability. What is meant by "marketability"? Local
lenders will "originate" a loan here, and, often, sell it to an
out-of-state investor. This investor, who may never see the property,
needs to know that he has a valid and enforceable lien. Title insurance is
the way of making certain. Without a current title policy, the loan is
essentially unmarketable.
What does my Title dollar pay for?
Title insurers, unlike property or casualty insurance companies, operate
under the theory of "risk elimination."
Risk elimination can only be accomplished after an intensive period of
risk identification.
Title companies spend a high percentage of their operating revenue each
year collecting, storing, maintaining and analyzing official records for
information that affects title to real property. The issuance of a title
insurance policy is highly labor-intensive. It is based upon the
maintenance of a title "plant" or library of title records, in many cases
dating back over a hundred years. Each day, recorded documents affecting
real property are posted to these plants so that when a title search on a
particular parcel is requested, the information is already organized for
rapid and accurate retrieval.
Trained title experts are able, with the aid of their extensive title
plants, to identify the rights others may have in your property, such as
recorded liens, legal actions, disputed interests, rights of way or other
encumbrances on your title. Before closing your transaction, you can seek
to "clear" those encumbrances which you do not wish to assume.
The goal of title companies is to conduct such a thorough search and
evaluation of public records that no claims will ever arise. Of course,
this is impossible--we live in an imperfect world, where human error and
changing legal interpretations make 100 percent risk elimination
impossible. When claims do arise, title insurance companies have
professional claims personnel to make sure that your property rights are
protected pursuant to the terms of your policy.
To conclude, when you pay for your title insurance policy, you are paying
for a team of professionals who have worked together to deliver you a
title insurance policy which represents protection for your ownership of
real property.
Who can I look for straight answers on Title, Closing, and closing
costs?
Title or escrow company personnel are available to review and explain your
title policy and your closing statement.
Article by CLTA
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